10% wear and tear loss affect on furnished?

by Readers Question

3 years ago

10% wear and tear loss affect on furnished?

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10% wear and tear loss affect on furnished?

There has been a lot of talk about this allowance being fair game for removal and at first I thought the same. When I read the IR consultation document I suddenly realised some serious consequences and why the allowance had probably been given in the first place. I have written to HMRC as part of their consultation process (link below) as first posted by Mark – thank you.furnished

if rental values for furnished and unfurnished properties is about the same, as it is here in London, then it makes no financial sense to let furnished. Why incur the additional outlay plus time and effort to purchase and the responsibility to maintain, insure and replace. I have 10 places in London and have about £50,000 tied up in furnishings and over the course of a year, spent a fair amount of my time fixing and sourcing white goods and furniture plus disposing of old items. For this I currently receive a tax break of about £6,000 that makes it worth my while. Much less than this and it would not be, loose it all together and I’d be mad to continue renting fully furnished.

So, would the market then compensate by attracting higher rents? In London, It is mostly young professionals who do not have the means or job stability to warrant having their own furniture that want to rent furnished places. I think what we would quite likely see over time is a substantial drop in the amount of furnished property on the market thereby making it harder for this dynamic section of the work force to be dynamic!

As with all changes, there is always a price, I wonder if this one has been thought through?

What do other people think?




Neil Patterson

3 years ago

Just for easy reference:

The proposals
2.1 The Government has announced that from April 2016 the Wear and Tear Allowance will be replaced witha relief that enables all landlords of residential dwelling houses to deduct the costs they actually incur on replacing furnishings
in the property. This will give relief for capital expenditure to a wider range of
property businesses as well as a more consistent and fairer way of calculating
taxable profits.

The proposals will give greater consistency and fairness across the residential
property letting sector and reduce the number of tax rules applying to the
residential property sector. The proposals will apply from 6 April 2016 for
income tax purposes and 1 April 2016 for corporation tax purposes.Scope of the new
replacement furniture relief

The relief will apply to landlords of unfurnished, part furnished and furnished
properties. The relief will not apply to ‘furnished holiday letting’ businesses (FHLs)
and letting of commercial properties, because these businesses receive relief through the Capital Allowances regime.

2.4The new replacement furniture relief will only apply to the replacement of
furnishings. The initial cost of furnishing a property would not be included.

Jamie Finch

3 years ago

Reply to the comment left by "Neil Patterson" at "04/08/2015 - 08:48":

Hi Neil

Thanks for that. It does seem to me that there is no 'fairness' in the arrangement and the new rules take away the only reason one would ever rent out furnished rather than unfurnished. Personally I'll just convert over time to unfurnished rentals and it won't impact overly. This is what I expect a lot of landlords will also do. I don't see it bothering many landlords but I do think there will impact badly on young people coming to London and other places with a dynamic economy.

Monty Bodkin

3 years ago

Reply to the comment left by "Jamie Finch" at "04/08/2015 - 09:42":

Hello Jamie,

You will still be able to claim on a renewals basis but I agree, landlords will stop providing furnished lets.

There will still be a demand for them but with less landlord supply, I think it will become possible to charge higher rents for furnished. Maybe even ten percent!

One big sector whacked by this will be student lets and will inevitably lead to higher student rents.

money manager

3 years ago

What are the transitional arrangements for those who have furnished recently and haven't even received the first year's W&T Allowance and will not therefore receive a second or subsequent?

White goods for us(most?) is largely a red herring as the only non-integrated appliance are the washer driers and were thus already eligible for a full in year replacement claim.

I actually support the move and it greatly simplifies tax calculations.

Neil Patterson

3 years ago

Reply to the comment left by "money manager" at "04/08/2015 - 11:53":

There is no mention of any transitional arrangements:

"The proposals will apply from 6 April 2016 for income tax purposes and 1 April 2016 for corporation tax purposes."

If I rented out a fully furnished flat last month prior to budget am I able to claim my 10% wear and tear April 6th for tax yr 15/16?
I spent a lot of money furnishing the flat.

So if I don't renew I can't Claim?

What about other tenants that insist I renew as they signed a fully furnished flat agreement two years ago??

Neil Patterson

3 years ago

Reply to the comment left by "AA Properties Wales " at "04/08/2015 - 12:44":

It is from April 2016 so you should be ok in the 2015/16 tax year.

However please only act upon advice from a qualified and insured accountant or HMRC.

Ian Cognito

3 years ago

I agree with Monty Bodkin. As posted in another thread:

1) Will Landlord's reduce supply of furnished accommodation? YES (according to 99% of 118 contributors).
2) Will some Tenant's still demand furnished accommodation? YES.
3) Assuming there is no glut of furnished accommodation waiting to get "used up", market forces WILL open up the differential between furnished and unfurnished.

The new system with regard to Wear & Tear is fair and logical. The current system with its arbitrary 10% is neither.


3 years ago

There will be no overnight change - anyone with existing furnished properties will continue to rent furnished as they have already incurred the expense. They may find that they will continue to do so, as pieces of furniture are generally replaced incrementally and the whole cost will be deductible from profits.

Anyone considering buying new furniture will prefer to wait until after 6 April and deduct the whole amount from their 2016-17 profits.

In the houseshare market there is *strong* demand for furnished property: how many young people - working or students - want to lug beds, wardrobes, TVs and so on around with them, and find a place to store it all when they take time out to go travelling or live in student halls? I don't expect many landlords running HMOs are going to stop providing furnished accommodation - it's simply too popular. It may not earn much of a premium on the rent, but it certainly improves demand and reduces void levels.


3 years ago

I can also see certain landlords using the new rules as an opportunity to upgrade their personal home furnishings: buying a new sofa, say, ostensibly for a rental property, then deducting the whole cost from their rental receipts, then deciding after a suitable period that the tenants can live with the landlord's cast-offs and quietly swapping them over.

Ditto curtains: perhaps they needed replacing in the rented house, but the landlord's choice didn't go down well with the tenants, so she used something else - and fortunately the curtains worked just perfectly in her own house.

Of course I'm not encouraging such practices, but I can't see anything in the regulations that says these 100% deductible furnishings must be used in a specific, demonstrable rented property, or over any particular timeframe. Wear and tear by tenants is a highly moveable feast.

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